The Supreme Court has held that unadjudicated claims for interest and damages under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, which had not been determined before the commencement of the Corporate Insolvency Resolution Process (CIRP), need not be provided for in a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 (IBC).

A bench of Justice Manoj Misra and Justice Vijay Bishnoi dismissed an appeal filed by the Employees' Provident Fund Organisation (EPFO) challenging a National Company Law Appellate Tribunal (NCLAT) judgment which had upheld the approval of a resolution plan that excluded EPFO's claims towards interest under Section 7Q and damages under Section 14B of the 1952 Act.

“In our view, though PF dues are excluded from the liquidation estate under Section 36(4)(iii) of IBC, liability of CD towards interest and damages payable under Section 7Q and 14B of the 1952 Act, if not determined and finalized before CIRP commencement, would fall in the category of a contingent liability. To assuage the concern of all stakeholders, the COC, in its commercial wisdom, may provide for a lump sum amount to meet contingent liabilities arising from uncrystallized claims. However, if the COC, in its commercial wisdom, has not provided for such 5 contingent liabilities in the resolution plan, its decision cannot be faulted because the underlying object of CIRP is to adhere to fixed timelines”, the Court held.

The case arose after the corporate debtor was admitted into CIRP on May 1, 2023. Pursuant to the public announcement inviting claims, the EPFO lodged a claim of Rs. 22,49,956, comprising provident fund dues, interest and damages. The Adjudicating Authority subsequently approved the resolution plan on May 17, 2024.

Under the approved resolution plan, only Rs.73,120 was earmarked towards provident fund dues against the total claim of Rs. 22,49,956. The EPFO's claim consisted of Rs.73,120 towards provident fund dues under Section 7A, Rs. 9,32,805 towards interest under Section 7Q and Rs. 12,44,031 towards damages under Section 14B of the 1952 Act.

Before the Supreme Court, the EPFO argued that provident fund dues are excluded from the liquidation estate under Section 36(4)(a)(iii) of the IBC and therefore could not be subjected to any haircut under the resolution plan.

The successful resolution applicant, however, contended that no determination order under either Section 7A or Section 14B had been passed before the commencement of CIRP. Consequently, the claims for interest and damages had not crystallised. It further submitted that the employer's provident fund contribution had already been provided for under the resolution plan, which had been approved by the Committee of Creditors (CoC) with a 100% voting share and thereafter by the Adjudicating Authority.

The NCLAT had found that proceedings relating to interest and damages were initiated only on May 10, 2023, after the commencement of CIRP on May 1, 2023. Since those claims had neither crystallised nor could be adjudicated because of the moratorium, the tribunal held that they were not entitled to the protection available under Section 36(4)(a)(iii) of the IBC and declined to interfere with the resolution plan.

Affirming that view, the Supreme Court referred to its recent decision in Tata Steel Ltd. v. Varsha & Anr. 2026 LiveLaw (SC) 694, which reiterated that uncertain or unquantified claims cannot be allowed to resurface after approval of a resolution plan, as that would be contrary to the "clean slate" principle.

The Court also relied on Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, where the Court held that all claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows the exact liabilities it would have to bear.

The Court held that liability towards interest and damages under Sections 7Q and 14B of the 1952 Act, if not determined and finalised before the commencement of CIRP, would amount to contingent liabilities.

The Court noted that requiring a prospective resolution applicant to account for uncertain liabilities would defeat the objective of the IBC.

“If the prospective resolution applicant is kept guessing as to what he would have to pay to take over and run the business of the CD, it may not enter the fray thereby defeating the underlying object of IBC”, the Court observed.

The Court further held that since the resolution plan had provided for payment of crystallised provident fund dues and excluded only uncrystallised claims for interest and damages, regarding which proceedings had not been initiated before the commencement of CIRP, there was no blatant violation of the statutory mandate of the IBC. It therefore found no reason to interfere with the approval of the resolution plan and dismissed the appeal.

Case Title: Employees Provident Fund Organisation v. Rachna Jhunjhunwala & Anr., Civil Appeal No. 9768 of 2026 @ Diary No. 18254 of 2026

Citation : 2026 LiveLaw (SC) 749